Question

If there is a cash shortage, the company borrows money. If a surplus occurs funds are used to repay loans or to invest in short-term assets. All borrowing, repayments, and interest payments occur on the last day of the month. The interest rate is 1% per month. The company had no debt before January 1st. The amount of interest expense incurred for January is:

Answer 1

Nil

Step-by-step explanation:

Given that,

There is a cash shortage.

All borrowing, repayments, and interest payments occur on the last day of the month.

Interest rate = 1% per month

Debt = No debt before 1st January

The amount is borrowed at the end of the month of January and interest is paid in the following month i.e February.

Hence, the amount of interest expense incurred for January is nothing, it means zero.